People often buy insurance on their motor vehicle and think that they have “full coverage.” In fact, many people who have “full coverage” do not have the types of insurance they need and even more frequently do not have the amount of coverage they need.
We suggest that you find your “declarations” page from your vehicle insurance policy and read it in conjunction with the remainder of this post. The declarations page is sent to you with each policy renewal and shows what type of coverage you have for each vehicle insured under the policy. It also shows the cost of each type of coverage.
Here is an explanation of the various types of coverage:
Liability coverage is required by law in Tennessee and most other states. Liability insurance exists to help cover damages for injuries to others for which you become legally responsible resulting from a covered accident. In other words, this insurance protects you in the event you cause or are alleged to have caused a wreck that has injured or killed another person.
Most liability insurance in Tennessee is sold in what is called a “split policy.” A split policy has separate insurance limits on a per person, per accident basis. The minimum amount of insurance under Tennessee law is $25,000 per person, $50,000 per accident. This is what is known as a “25/50” policy.
A 25/50 policy will pay up to $25,000 in proven damages to one person injured in an accident and up to $50,000 when two or more people are injured in the accident. Under a 25/50 policy, no single person can receive more than $25,000 from the policy, regardless of the amount of the proven damages, and all people injured can recover no more than $50,000.
One night in a trauma unit in a hospital can exceed $25,000, so you can see that insurance coverage under a 25/50 policy provides very little protection to an at-fault driver. If the amount of the injuries and losses exceeds the amounts of insurance coverage, the at-fault driver (and sometimes the vehicle owner) is personally liable for the amount of damages over the insurance policy limits.
Other commonly seen policy amounts for liability insurance coverage are as follows:
- $50,000 per person, $100,000 per accident.
- $100,000 per person, $300,000 per accident.
- $250,000 per person, $500,000 per accident.
Some auto and truck policies are “single limit” policies. Single limit policies provide a certain number of dollars for payment of claims for any one accident, regardless of the number of people injured or killed. Common single limit policy limits are $100,000 per accident, $300,000 per accident, $500,000 per accident, or $1,000,000 per accident.
The cost of liability coverage does not increase at the same rate as the amount of coverage. For example, a 50/100 policy does not cost twice as much as a 25/50 policy. A 100/300 policy does not cost twice as much as a 50/100 policy. Why is this so? Because most accidents result in no or small injuries and thus the risk of an insurer paying out the entire policy is much less than the risk of an insurer paying a small claim – there are simply more small claims. Thus, you can frequently buy twice as much of coverage than you currently have for much less extra cost than the cost of your current policy.
Property Damage Coverage
Property damage insurance coverage protects you (up to the amount of the coverage for damage to another person’s vehicle or property in the event you cause damage to that property. Examples of property that can be damaged in a wreck include another driver’s car, a guardrail, a telephone pole, etc.
This type of coverage is sold as “single limit coverage” – $25,000 or $50,000 are common amounts. If you negligently cause property damage to another and you do not have sufficient property damage insurance to pay for the damage caused, you are personally liable for the amount.
Collision insurance covers damage to your car after an accident involving another vehicle and may help to repair or replace the vehicle. The amount of this coverage is usually not stated in the policy, but your vehicle is described and the insuring agreement permits you to recover the fair market value of your vehicle if it is a total loss.
Comprehensive insurance provides coverage in the instance of damages to your vehicle not involving another vehicle. It is there to help repair or replace your vehicle when it is damaged to due matters other than collisions, including vandalism, failing trees and accidents with animals.
Uninsured Motorist Insurance (UM)
Uninsured motorist insurance can protect you and your car against uninsured drivers and hit-and-run accidents. This coverage is often paired with underinsured motorist coverage (UIM).
UM (and UIM) coverage is typically equal to (and never in excess of) the liability insurance on the vehicle unless you waive in writing your decision to have lower limits than the amount of your liability coverage or no UM coverage at all. UM coverage is very important – over 20% of Tennessee vehicles on the road have no liability insurance. Thus, if an uninsured driver causes a wreck and injures you or the occupants of your car you can look to your own UM coverage for payment of medical bills, lost income, and other damages in an amount not to exceed your UM coverage.
Underinsured Motorist Insurance (UIM)
Many drivers in Tennessee and other state choose to carry the minimum in liability coverage to save money ($25,000 per person, $50,000 per accident in Tennessee), but if such drivers cause a crash and seriously injure you or the occupants of your car this amount of coverage may not be enough to meet your medical bills, pay your lost income, etc. UIM can protect you in the event of an accident with a driver whose insurance is not enough to cover the costs.
For example, if the underinsured motorist has a 25/50 policy and you incur medical bills and other damages equaling $100,000, you will be able to collect $100,000 – $25,000 from the at-fault driver’s insurance policy and $75,000 from your UIM insurer.
Medical Payments Coverage Insurance
Medical costs following an accident can be very expensive. Medical payments coverage can help pay medical costs related to a covered accident, regardless of who is at fault. This coverage can be very helpful even if you have health insurance – you can use this coverage to pay deductibles, co-pays and for other medical needs not covered by your health insurance policy.
Car value can depreciate quickly, so many drivers who face a total loss of their car in a wreck can receive the fair market value of their car but still have insufficient money to pay off the car loan. Gap insurance is particularly important when you borrow 80 – 100% of the money you need to buy a car.
This insurance pays to have your vehicle towed (benefit limited to an amount certain).
Rental Car Insurance
Rental reimbursement insurance helps pay for a rental car if your vehicle cannot be driven after an accident. There is a per day limit and often a maximum amount paid under this provision but many rental companies will work with you and give you a rental vehicle at no or little out-of-pocket expense.
Car insurance is expensive and hard to work into the tight family budget. But serious car and truck crashes happen frequently, and you need to understand how insurance works so you can protect your family – whether the crash is caused by you or by another driver.